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Informist, Friday, Jan. 17, 2025

--IMF raises global growth forecast for 2025 by 10 bps to 3.3%

--IMF retains global growth forecast for 2026 at 3.3%

--IMF raises US growth forecast for 2025 by 50 bps to 2.7%

--IMF raises US growth forecast for 2026 by 10 bps to 2.1%

--IMF raises China growth forecast for 2025 by 10 bps to 4.6%

--IMF raises China growth forecast for 2026 by 40 bps to 4.5%

--IMF cuts global inflation forecast for 2025 by 10 bps to 4.2%

--IMF cuts global inflation forecast for 2026 by 10 bps to 3.5%

--IMF: A new wave of tariffs could exacerbate trade tensions

--IMF: Looser fiscal policy in US may boost econ activity in near term

NEW DELHI – The International Monetary Fund has raised its global GDP growth forecast for 2025 on expectations that the US economy will perform stronger than previously expected this calendar year. 

The IMF raised its global growth forecast for 2025 by 10 basis points to 3.3%, while it maintained the 2026 projection, also at 3.3%. The global economy is estimated to have risen 3.2% in 2024. Despite the upward revision to this year's forecast, global growth will remain below the average 3.7% seen during 2000 and 2019.

"Medium-term risks to the baseline are tilted to the downside, while the near-term outlook is characterised by divergent risks," the IMF said in the January update to the World Economic Outlook report. "Upside risks could lift already-robust growth in the US in the short run, whereas risks in other countries are on the downside amid elevated policy uncertainty."

The US economy is projected to grow 2.7% in 2025, 50 bps higher than previously expected, the IMF said. The world's largest economy is seen expanding 2.1% in 2026, having grown 2.8% last year. "In the US, underlying demand remains robust, reflecting strong wealth effects, a less restrictive monetary policy stance, and supportive financial conditions," the IMF said. 

The Fund said that the balance of risks to the US outlook is tilted to the upside in the near term due to "elevated policy uncertainty". "An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains."

"Growth could suffer in both the near and medium term, but at varying degrees across economies," it said. A looser fiscal policy in the US, driven by new expansionary measures such as tax cuts, could boost economic activity in the near term, with small positive spillovers onto global growth, the IMF said. 

The IMF also raised the growth forecast for China's economy, which is projected to expand 4.6% in 2025, 10 bps higher than the previous estimate. For 2026, China's growth forecast was raised by 40 bps to 4.5%. China's GDP is estimated to have grown 4.8% last year. 

The IMF lowered this year's growth forecast for the euro area by 20 bps to 1.0%, and by 2025's forecast by 10 bps to 1.4%. The euro area had grown 0.8% in 2024. "Weaker-than-expected momentum at the end of 2024, especially in manufacturing, and heightened political and policy uncertainty explain a downward revision of 0.2 percentage point (20 bps) to 1.0% in 2025."

Global headline inflation is expected to decline to 4.2% in 2025 and to 3.5% in 2026, converging back to target earlier in advanced economies than in emerging market and developing economies. Globally, inflation was estimated at 5.7% in 2024.

"Progress on disinflation is expected to continue," the IMF said. "The gradual cooling of labour markets is expected to keep demand pressures at bay. Combined with the expected decline in energy prices, headline inflation is projected to continue its descent toward central bank targets."

Inflation is projected to remain above the 2% target in the US this year, whereas inflationary dynamics are expected to be more subdued in the euro area. The IMF projects low inflation in China. Consequently, the gap between anticipated policy rates in the US and other countries has become wider, the IMF said.

"Policy-generated disruptions to the ongoing disinflation process could interrupt the pivot to easing monetary policy, with implications for fiscal sustainability and financial stability," the IMF said. "Managing these risks requires a keen policy focus on balancing trade-offs between inflation and real activity, rebuilding buffers, and lifting medium-term growth prospects through stepped-up structural reforms as well as stronger multilateral rules and cooperation."  End

Reported by Shubham Rana

Edited by Tanima Banerjee

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